Taking a cue from Reliance Industries, Gujarat-government firm GSPC is seeking to price natural gas it will produce from KG basin block at a rate indexed to cost of imported liquid gas (LNG).

Gujarat State Petroleum Corp Ltd (GSPC) wants to price gas that it will produce from Deen Dayal West (DDW) gas field in block KG-OSN-2001/3 by third quarter of 2013, at a minimum of USD 8.50 per million British thermal unit, excluding local taxes and margin.

GSPC, owned by the Gujarat government, will produce a maximum of 5.24 million standard cubic meters per day of gas from the offshore DDW gas field. The gas will land at Mallavaram, near Kakinada in Andhra Pradesh, and can be ferried to customers up to Gujarat through Reliance Gas Transportation Infrastructure Ltd's East-West pipeline.

The company in an advertisement issued in national and regional dailies invited bids from potential consumers at price formula at which Petronet LNG gets liquefied natural gas (LNG) from Qatar on a long-term contract.

GSPC sought 12.67 per cent of the average Brent crude oil price plus USD 0.26 per million British thermal unit. It asked users to quote a positive or negative number, termed as 'V', that can be added to this pricing formula.

"Brent crude oil price will be capped at USD 110 per barrel and floor of the Brent crude oil price will be USD 65," it said in the advertisement.

Considering 'zero' as the value of the quotable component 'V', the DDW gas will cost about USD 14.2 per mmBtu at the cap price of USD 110.

"Even if bid value of 'V' is negative, floor gas price will always be USD 8.50 per mmBtu," GSPC said.

A year back, RIL had sought to price gas it will produce from below coal seams, called coal-bed methane (CBM), from its Sohagrpur blocks in Mahdyra Pradesh at 12.67 per cent of the average price of crude oil imported into Japan (called Japan Crude Cocktail, or JCC) plus USD 0.26 per mmBtu.

Petronet pays RasGas of Qatar a price of 12.67 per cent of JCC, besides incurring a USD 0.26 per mmBtu cost on transporting the gas in ships.

Unlike GSPC, RIL did not set any floor or cap. At a USD 100 per barrel JCC average, CBM was to cost USD 12.67 per mmBtu plus USD 0.26 per mmBtu, totalling USD 12.93 per mmBtu.

GSPC, which sought bids by March 12, said it will charge an additional marketing margin of Rs 10.21 per mmBtu while the consumer will also have to bear all taxes, duties, levies on sale of gas as well as transportation cost and duties and taxes thereon.

RIL then extended this pricing formula for its eastern offshore KG-D6 gas when the current USD 4.205 per mmBtu rate expires in March 31, 2014.

While the Oil Ministry has accepted a complex international hub-based pricing formula suggested by Rangarajan Committee for all gas produced in the country, GSPC said it as per Production Sharing Contract (PSC) provisions is seeking to discover gas price through competitive arms length basis.

Price of gas as per Rangarajan panel recommendation would come to USD 8-8.5 per mmBtu.

Great Eastern Energy Corp (GEECL) is selling CBM produced from its Raniganj block in West Bengal at USD 6.79 per mmBtu, while domestically produced natural gas is priced at USD 4.2 to USD 5.73 per mmBtu.

RIL had sought a marketing margin of USD 0.15 per mmBtu from CBM users, even though its USD 0.135 per mmBtu marketing margin charged on KG-D6 gas has been sent to oil regulator PNGRB for review.

Sources said the Oil Ministry was reluctant to approve the price sought by RIL as nowhere in the world is domestic gas priced at LNG rates.

RasGas of Qatar prices the 7.5 million tonnes a year (about 30 mmscmd) of gas it sells to Petronet LNG Ltd at 12.67 per cent of JCC. Another USD 0.26 per mmBtu is the cost it takes for shipping the gas cooled to turn it into liquid (called LNG) in cryogenic ships.

RIL adopted this formula and has sought pricing of its CBM as well as KG-D6 gas in line with it.